* Q2 EPS $0.56 ex-items vs $0.36 est, rev down 20 pct
* Cuts dividend to $0.20 from $0.41
* Says expanded cost-cutting actions
* Shares fall 10 pct
(Adds analyst comments)
July 30 (Reuters) - Label and office supplies maker Avery Dennison Corp (AVY.N) posted better-than-expected quarterly profit, but slashed its quarterly dividend in half to repay debt, sending its shares down 10 percent.
"The upside relative to the Street seems to be primarily a function of aggressive cost-cutting, with core sales down 14 percent," Robert W Baird analyst Ghansham Panjabi said in a note, adding that the Street "mis-calibrated" the earnings forecast.
Avery Dennison, which began a restructuring program in the fourth quarter and cut 10 percent of its global workforce, said it has expanded actions to cut fixed costs.
The company is now targeting in excess of $160 million in annualized savings by mid-2010.
Focusing on the near-to-medium term, while the company will undoubtedly benefit from better fixed cost leverage once volumes stabilize, the continued deceleration in North American volumes were concerning, Baird's Panjabi said.
The company set a dividend of 20 cents a share, down from the 41 cents it paid earlier.
"The possibility of continued poor market conditions beyond 2009, along with increased pension funding requirements, compels us to take precautionary action," Chief Executive Dean Scarborough said in a statement.
The company, which has been hit by the sharp decline in retail, posted second-quarter net income of $39.8 million, or 38 cents a share, compared with $92.4 million, or 93 cents a share, a year ago.
Excluding items, it earned 56 cents a share.
Revenue fell 20 percent to $1.46 billion.
Analysts were expecting earnings of 36 cents a share, before special items, on revenue of $1.54 billion, according to Reuters Estimates.
Shares of the Pasadena, California-based company pared losses to trade down $2.64 at $27.17. They had earlier touched a low of $26.91 on the New York Stock Exchange. (Reporting by A.Ananthalakshmi and Eric Yep in Bangalore; Editing by Maju Samuel, Aradhana Aravindan)